Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ARISTOCRAT LEISURE LIMITED, and other companies. For more info SHARE ANALYSIS: ALL

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday May 9 to Friday May 13, 2016
Total Upgrades: 10
Total Downgrades: 15
Net Ratings Breakdown: Buy 42.44%; Hold 44.07%; Sell 13.49%

At the end of five weeks of accumulating gains for the Australian share market, stockbrokers continue to issue more downgrades than upgrades in ratings for individual stocks, in line with the historical correlation between rising share prices and diminishing value.

For the week ending Friday, 13th May 2016, FNArena registered 10 upgrades and 15 downgrades. Stand-out names include Aristocrat Leisure, whose market update blew friend and foe away, triggering significant increases to market projections, Fortescue Minerals, whose debt profile is de-risking amidst a more favourable iron ore pricing environment, and department store operator Myer whose turnaround strategy is gaining more supporters as operational improvement gains traction.

On the negative side we find many of share market outperformers, including Charter Hall Retail, Treasury Wine Estates, Dexus Property and Medibank Private, as well as perennial disappointer AMP, who simply did it again.

No surprise, Aristocrat leads the table for positive revisions to valuation/price targets (+22.53%), followed by Mineral Resources who also benefits from better price iron ore as well as ongoing excitement for lithium. CSR and Fortescue have also enjoyed noticeable increases to price targets.

Things remained relatively quiet on the negative side, with News Corp -6.75% adjustment for the week beating AMP's -2.77%.

Aristocrat is not taking honours for earnings estimates, with Karoon Gas enjoying an increase of 19.79%, followed by Aristocrat, then Xero whose financial report pleased through reduction in cash outflows. Mineral Resources (+9%) and NextDC (+7%) also enjoyed sizeable upward adjustments to consensus forecasts.

The week revealed equally large downward adjustments for the likes of AusNet Services, Regis Healthcare, Orica, BT Investment, Incitec Pivot and Domino's Pizza. Quite telling, AMP, with a fall in consensus EPS forecasts of -4.5%, is beaten by six others, with no miners or energy producers involved.

Local confession season continues with out-of-season financial reports thus far more mixed than disappointing across the board.

Upgrade

ARISTOCRAT LEISURE LIMITED ((ALL)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Buy from Neutral by UBS .B/H/S: 6/0/0

The company's update suggests FY16 earnings are likely to be 20% above Credit Suisse's forecasts. The performance has been fuelled by gains in Australian market share, digital and the US market gains in Class III gaming.

The broker expects earnings growth to slow but the base is considered now to be much higher. Credit Suisse upgrades to Outperform from Neutral. Target is raised to $13.00 from $10.50.

The trading update suggests a 66% increase in the first half profit, with UBS observing the performance is underpinned by growth in North American Class III premium gaming, sales in Australia and the digital.

The broker upgrades forecasts by 22% for FY16 and 27% for FY17. UBS also envisages participation in a higher multiple business versus outright sales with stickier recurring revenue as more valuable.

The broker changes analyst and reviews its numbers, upgrading to Buy from Neutral. Target is raised to $12.88 from $9.75.

FLETCHER BUILDING LIMITED ((FBU)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/1/0

Citi analysts have seen enough evidence to lift NZ construction activity forecasts over the medium term for a prolonged cycle. This has had a positive impact on expectations for Fletcher Building. Price target lifts to NZ$9.50 from NZ$7.70.

The new price target suggests a healthy return ahead and Citi thus upgrades to Buy from Neutral. The analysts anticipate ongoing re-rating for the shares.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/2

Iron ore prices have slipped 12% in the past week to US$56/t and are now at a level that reflects near-term fundamentals in Ord Minnett's view. The broker still expects prices to move down 10% this year but no long considers the price a risk to drive the stock.

Hence, the broker upgrades to Accumulate from Hold. Target is steady at $3.50. The broker believes Fortescue Metals has one of the most compelling valuation metrics in the sector.

MINERAL RESOURCES LIMITED ((MIN)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/1/0

Deutsche Bank observes the shift in energy use is supported by improving economics for lithium ion batteries. Global battery consumption is set to increase fivefold over the next 10 years.

The broker believes that companies with Tier 1 assets that generate strong margins and volume growth will outperform in this market. Mineral Resources has a stake in the Mt Marion hard rock project which is entering the market in the second half and will be the operator for the joint venture.

Deutsche Bank upgrades to Buy from Hold. Target rises to $8.00 from $6.70.

MACQUARIE GROUP LIMITED ((MQG)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/2/1

A slowing of activity driven by global market volatility was evident in the FY16 results, Deutsche Bank maintains, but demonstrates the resilience of the business model.

The broker does not believe the current valuation reflects Macquarie's better position versus its peers, given 70% of earnings are from annuity businesses.

If the asset price environment becomes tougher the bank may struggle, although the risk appears to Deutsche Bank to be factored into the share price. Rating is upgraded to Buy from Hold. Target is raised to $73.20 from $65.50.

MYER HOLDINGS LIMITED ((MYR)) Upgrade to Buy from Neutral by UBS and Upgrade to Hold from Sell by Ord Minnett .B/H/S: 2/5/0

March quarter sales were solid in a challenging market, UBS observes. Like-for-like momentum is pleasing and the broker suggests the investment in labour and new brands is gaining traction.

Guidance for a fall of 7-15% in underlying profit in FY16 was reiterated. UBS, while considering it still early in the turnaround, believes management is making progress and the stock is looking cheap versus its discretionary peers.

The rating is upgraded to Buy from Neutral. Target is $1.25.

Myer reported a better-than-expected result in the March quarter, with sales up 3.4%. Ord Minnett reviews its outlook and upgrades to Hold from Sell for the first time since 2011. Target is raised to $1.40 from $1.10.

The main reasons for the upgrade are that the poor performance over many years has provided a springboard for management that has been underestimated. Furthermore, recent data has been better than expected and the opportunities for reducing space and brands are more obvious.

OROCOBRE LIMITED ((ORE)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/0/1

Deutsche Bank observes the shift in energy use is supported by improving economics for lithium ion batteries. Global battery consumption is set to increase fivefold over the next 10 years.

The broker believes that companies with Tier 1 assets that generate strong margins and volume growth will outperform in this market. Orecobre is ramping up its Olaroz brine project and Deutsche Bank upgrades to Buy from Hold. Target rises to $3.90 from $2.70.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 6/1/1

Ord Minnett expects Australian domestic gas prices to rise in all eastern states, because of increasing cost of supply and because Queensland producers have the option to export production if they don't get the price they demand.

Origin Energy should benefit from these dynamics, hence the upgrade to Accumulate from Hold. Target price gains 20c to $5.70.

Downgrade

AMP LIMITED ((AMP)) Downgrade to Neutral from Buy by UBS .B/H/S: 6/2/0

First quarter cash flows were soft but broadly in line. The broker is more concerned about the re-emergence of significant losses in wealth protection as it had expected that most business would perform reasonably well and contribute to mid single digit earnings growth.

The broker is also not satisfied with the explanation for the chairman's sudden departure. Hence, until AMP can demonstrate greater stability in its more troubled division the broker downgrades to Neutral from Buy. Target is reduced to $5.50 from $6.30.

APA GROUP ((APA)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 4/4/0

The stockbroker believes APA is increasingly challenged in the organic growth department. Hence the downgrade to Hold from Buy. Target price falls to $9.60 from $10.00.

CHARTER HALL RETAIL REIT ((CQR)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/2/4

There's no denying the strong outperformance of AREITs. Citi analysts calculate the sector is up some 50% over the past two years while the broader market's gains over the period hardly register.

But the analysts now also believe further upside looks like a challenge. They have decided to issue five downgrades. Charter Hall Retail is one of them. Downgrade to Sell from Neutral. No further changes made.

CSR LIMITED ((CSR)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/2

Morgan Stanley expects group earnings will likely decline after the FY16 result as FY17 is considered likely to be the peak for key building products.

The broker believes the recent stock performance implies earnings in FY17 that are too high and downgrades to Underweight from Equal-weight. In-Line sector view retained. Target is raised to $3.15 from $2.87.

CAPILANO HONEY LIMITED ((CZZ)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

A warm start to the key winter sales period has likely resulted in the company discounting its product with major retailers, Morgans contends. The broker believes previous forecasts were too high, hence downwardly revises FY16 earnings by 12.5%.

Morgans now forecasts FY16 profit to be up 34%. After a strong appreciation in the share price, the rating is downgraded to Hold from Add. The broker stresses it continues to rate the company highly.Target is reduced to $21.80 from $22.80.

DEXUS PROPERTY GROUP ((DXS)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/1/3

There's no denying the strong outperformance of AREITs. Citi analysts calculate the sector is up some 50% over the past two years while the broader market's gains over the period hardly register.

But the analysts now also believe further upside looks like a challenge. They have decided to issue five downgrades. Dexus Property is one of them. Downgrade to Sell from Neutral. No further changes made.

GPT METRO OFFICE FUND ((GMF)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

Growthpoint ((GOZ)) has improved its bid terms, offering 0.3756 securities and $1.185 in cash per GPT Metro unit, for an implied consideration of $2.41.

Independent directors intend to recommend the transaction, subject to due diligence and no superior proposal.

Morgans downgrades to Hold from Add rating and revises the target to $2.41 from $2.20, in line with the bid.

MIRVAC GROUP ((MGR)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/1

There's no denying the strong outperformance of AREITs. Citi analysts calculate the sector is up some 50% over the past two years while the broader market's gains over the period hardly register.

But the analysts now also believe further upside looks like a challenge. They have decided to issue five downgrades. Mirvac is one of them. Downgrade to Neutral from Buy. Target price falls to $2.12 from $2.20.

MEDIBANK PRIVATE LIMITED ((MPL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/5/1

Quarterly releases from both Medibank and nib show strong profitability in FY16 to date, supported by the just released industry report for FY15. Macquarie expects both listed funds to deliver results ahead of current consensus and has set forecasts above-market.

However investors have now pushed both stocks through Macquarie's target prices and hence the broker pulls back its rating on both to Neutral. Medibank's target unchanged at $2.92.

NIB HOLDINGS LIMITED ((NHF)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/6/0

Quarterly releases from both Medibank and nib show strong profitability in FY16 to date, supported by the just released industry report for FY15. Macquarie expects both listed funds to deliver results ahead of current consensus and has set forecasts above-market.

However investors have now pushed both stocks through Macquarie's target prices and hence the broker pulls back its rating on both to Neutral. Nib's target unchanged at $4.40.

SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP ((SCP)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/1/4

There's no denying the strong outperformance of AREITs. Citi analysts calculate the sector is up some 50% over the past two years while the broader market's gains over the period hardly register.

But the analysts now also believe further upside looks like a challenge. They have decided to issue five downgrades. Shopping Centres Australasia is one of them. Downgrade to Sell from Neutral. No further changes made.

SEEK LIMITED ((SEK)) Downgrade to Hold from Add by Morgans .B/H/S: 2/5/0

The company has received a second takeover bid for Zhaopin, which values its 63% stake at $830m. Morgans suspects the company's natural inclination is to hold onto the business, as it is a long way from reaching its potential.

While the bid is an improvement on the first the broker believes, if Seek accepts, that it would be value destructive. Forecasts are downgraded to reflect higher amortisation of executive share scheme costs, lower interest income and higher levels of start-up losses.

As the shares have strengthened recently Morgans downgrades to Hold from Add. Target is $16.15.

TREASURY WINE ESTATES LIMITED ((TWE)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/4/1

The company's share price has rallied on the back of the retracement in the Australian dollar, Credit Suisse observes, and the stock continues to break away from peer valuations.

Growth is expected to be a challenge, with the broker suspecting the integration of the Diageo assets will not be easy to tuck in. Rating is downgraded to Underperform from Neutral given the rally. Target is $9.20.

VICINITY CENTRES ((VCX)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/4/2

There's no denying the strong outperformance of AREITs. Citi analysts calculate the sector is up some 50% over the past two years while the broader market's gains over the period hardly register.

But the analysts now also believe further upside looks like a challenge. They have decided to issue five downgrades. Vicinity Centres is one of them. Downgrade to Neutral from Buy. No further changes made.

WESTFIELD CORPORATION ((WFD)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/2/0

UBS has conducted an extensive review of 700 public mall and outlet properties across the US. The broker's deductions suggests Westfield's urban portfolio has a superior demographic compared with its US peers.

Still, these favourable demographics and the development pipeline are largely seen reflected in pricing. The broker continues to like the exposure but believes it is prudent to pull back to Neutral from Buy. Target is $11.00.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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